Downturn deals blow to 'safe bet' Vodafone

Vodafone distressed investors by revealing falling mobile usage and revenues in markets hit by mass redundancies in the construction industry and the return of migrant workers to their homelands. The City had previously believed the telecoms industry is recession-proof - that people do not stop talking or messaging in a downturn.

What it had not reckoned on was whole segments of the economy who spend their working lives on the end of a mobile dumping the handset as they find themselves out of a job.

"What we are seeing is economic weakness leading to some soft numbers, especially in Spain and especially in certain segments covering migrant workers and the construction industry," said Arun Sarin in what made for an uncomfortable swansong, his last set of figures before he quits as chief executive.

"In Spain in particular, we have had a disproportionately large share of the migrant worker market and we had also targeted the small and medium-sized enterprise markets where there are strongly mobile workforces, like construction-Spain has been an exaggerated example but it is true of other markets where there has been a property downturn, like the UK and Ireland."

In the cut-throat UK market, revenues from calls slumped 4.4% in the three months to the end of June. In Spain, which accounts for a fifth of Vodafone's European revenues, total revenues were down 2.5% against forecasts of growth of 3%. In Europe as a whole, which accounts for three-quarters of its operations, revenues are off 0.2%. Just one trading quarter into its financial year, Vodafone is now warning revenues for the full year could be £900 million lower than its best estimate of £40.7 billion.

It is holding fast to forecasts of operating profits of between £11 billion and £11.5 billion for the year but analysts are fretting at the level of cost-cutting needed. Analysts slashed their ratings. Collins Stewart's Mark James said: "It was always too good to be true. The Spanish and UK markets, resilient to the economic slowdown to date, finally look to have cracked."

Richard Hunter at Hargreaves Lansdown said: "The stock has showed its defensive qualities with, prior to today, a 7% drop over the last year compared to 20% for the FTSE 100. The economic environment has now taken its toll."